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The collapse of layers of rock into a cave that formerly housed a limestone mine, which now operates as an underground storage facility, cannot be considered insured building decay, said a federal appeals court Friday, in affirming a lower court ruling in favor of a Chubb Ltd. unit.
In 2014, Kansas City, Missouri-based Interstate Underground Warehouse & Storage Inc. experienced “dome-outs,” in which layers of rock destabilized, detached and collapsed from above into the cave, according to the ruling by the 8th U.S. Circuit Court of Appeals in St. Louis in Westchester Surplus Lines Insurance Co. et al. v. Interstate Underground Warehouse & Storage Inc.
Interstate’s primary insurer, Chubb Ltd. unit Westchester Surplus Lines Insurance Co., sought a declaratory judgment in U.S. District Court in Kansas City that losses related to the dome-outs were not covered under its policy.
Four excess insurers, MS Amlin PLC, ACE Capital Ltd., Catlin Insurance Co. Ltd. and ACE Capital V Ltd., also sought a declaration there was no coverage under a policy they had issued to Interstate, according to the ruling.
The district court granted summary judgment for the insurers on the ground that because the cause of the losses was not “building decay” within the meaning of the primary policy, there was no coverage.
A unanimous three-judge appeals court panel agreed. “This appeal turns on whether the collapse that damaged the ‘building’ was caused by ‘building decay,’ said the ruling.
“It is undisputed that the relevant ‘decay’ occurred in the rubble zone above the natural ceiling of the cave. So the dispositive question is whether decay in the rubble zone was ‘building decay,’” the ruling said.
“Interstate posits that when it installed reinforcing bolts through the rubble, the rubble zone became part of the ‘building,’ such that future decay in the rubble zone qualified as ‘building decay,’” said the ruling.
“We are not convinced that the bolting process transformed the rubble zone and other earth around the bolts into part of the ‘building,’” the ruling said, however. “Rather, the bolts reinforced the facility’s natural ceiling, much like pilings beneath a large building provide support to that structure.
“Just as the soil or rock surrounding a skyscraper’s deepest pilings ordinarily would not be considered part of a building, the rubble zone above Interstate’s facility did not become part of the ‘building’ by virtue of reinforcement bolts protruding through that zone,” it said.
“Therefore, when we apply meaning that would be attached by an ordinary person of average understanding we conclude that the rubble zone above the natural ceiling of Interstate’s facility was not part of the ‘building’” and the damage caused by the dome-outs was not caused by “building decay,” said the ruling, in affirming the lower court’s decision.
Interstate’s attorney could not be reached for comment, and a Chubb spokesman had no comment.
Former directors and officers of a bankrupt real estate investment trust firm prevailed Monday in directors and officers’ litigation against a Chubb Ltd. unit over the issue of application of the insured vs. insured exclusion.